Obama Healthcare Plan Emphasizes Generics to Bring Down Costs Across System

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14 November 2008 :: J.E. Robertson

President-elect Barack Obama’s healthcare proposal, as laid out, aims to expand availability of safe generic prescriptions drugs, in order to bring down costs across the system and help secure full treatment for all Americans. High prescription-drug costs inflate insurance premiums and often determine whether patients will receive adequate treatment for sometimes serious health conditions. A prescription-drug plan, passed by George W. Bush, in concert with a bipartisan coalition in the then Republican-controlled Congress, aimed to help increase availability, but was not aggressive in reducing costs. [continues below...]

Obama’s plan specifically aims to acquire safe, quality generic prescription drugs from overseas producers, where those producers are the best option for a given generic. The plan targets manufacturers in “developed” nations, but there is speculation the plan would create a huge new market for inexpensive, high-quality prescription drugs, which could have an economic ripple-effect in developing countries specializing in the field, like India, and ultimately improve quality for their customers. At home, the result would be an overall cost-reduction that makes it more affordable to help get everybody covered.

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Cost-reduction is a mainstay of Obama’s plan, which includes the stated projection of reducing overall costs per family by as much as $2,500 per year. Other estimates of net cost reductions are more modest, but the number of innovations involved in this market-centered universal healthcare strategy is meaningful. Obama has drawn from the most effective programs bridging public funding and private insurance, such as the universal coverage plan achieved by Republican Mitt Romney, when he was governor of Massachusetts.

One of the key aims of the Obama healthcare strategy is to first achieve market-wide efficiencies, by bringing tens of millions of new customers into the market. This broadens the market for competitive insurers, and allows for a serious reduction of cost-to-consumer while allowing for potential increases in overall net profits. Costs could further be reduced through more effective preventive care, where actual funds devoted to preventing the onset of serious illnesses can reduce the risk of major personal health-crisis costs later on.

Real preventive care is difficult to deliver if coverage is not universal, because the entire system needs to build the costs of the uninsured into its pricing calculus. That constrains the ability of insurers to provide for genuinely preventive care, and so to benefit from the long-term financial improvements that should be seen in those accounts, i.e. lower costs for catastrophic health situations, on average.

Democrats have already begun organizing language, policy maneuvers and legislative allies to work on crafting the next major step in healthcare reform. Sen. Max Baucus (D-MT) has drafted a new proposal for healthcare reform legislation, prompting some to express concern that members of Congress may be preparing for a factional fight in which Obama’s will not be the only proposal to be debated. Allies of Obama, like Sen. Edward Kennedy (D-MA), have welcomed the “contribution” but urge unity in working to pass Obama’s proposal once he takes office.

While the largest pharmaceutical industry lobbying group PhRMA is planning a major ad campaign to persuade the public Obama’s plans could harm drug-company profits, and that this could be bad for the quality of medical treatment in the US, it says its ads will not criticize Obama or his proposals. They seek only to persuade the public that a “free market” for prescriptions drugs is the best solution. Some economists argue that lowering prices through emphasis on generics is simply an intelligent use of the free market as such, though it offers a potentially stiff challenge to “Big Pharma’s” profit standards.

Recognizing first of all that every American who pays taxes and/or buys health insurance, is already paying for the cost of covering the uninsured, building efficiencies into the system simply means the system as a whole —every one of us, on our own or collectively— is better able to cover those costs, in a way that would reduce the payable burden on individuals, families and businesses.